[sbinews] Learn to live with rising rupee

  • From: sbistcbangalore@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Wed, 24 Dec 2003 13:11:09 +0500

Learn to live with a rising Re, Vepa tells cos

MUMBAI: Corporates may have to learn to live with a rising currency while 
exporters will have to cope by cutting costs. 

This is the message conveyed by outgoing Reserve Bank of India deputy governor, 
Vepa Kamesam who during his tenure handled the exchange control department. 

In his final interview as a deputy governor, Mr Kamesam said that it is not 
possible to please everyone due to the complexities involved in exchange 
management. “In the last few years many exporters have learned to cut costs, 
and they have managed well,” said Mr Kamesam. 

He added that most have also taken advantage of the lower interest rates regime 
to lower their debts. 

Responding to a question on whether an appreciating currency has emerged as a 
tricky issue, Mr Kamesam said that swings in exchange rates were always an 
issue for regulators - from the record resurgence of the euro, to the wild 
swings in the yen-dollar market and the wild volatility in gold. 

Mr Kamesam, whose portfolio included information technology, said the Real Time 
Gross Settlement system would be in place soon as most of the operations in the 
money and securities market were now computerised. 

But the introduction of RTGS would raise certain issues for the regulators. 
Primary among this was the need for intra-day liquidity support that would 
arise as transactions are concluded on real-time. 

While RBI was taking measures to ensure that the intra-day liquidity 
requirements are met, what was occupying RBI was the fact that two systems 
would be operating in parallel. 

One the RTGS where transactions are final and two: the cheque clearing system, 
which provided for returns. It was therefore important that players do not try 
and arbitrage between the two systems. 

Another issue which the central bank was concerned with was that banks should 
not use RTGS as a lever to increase their transaction charges. “We will be 
charging the banks Rs 25 per transaction but this does not give them the right 
to charge their customers Rs 250,” said Mr Kamesam. 

An unfinished agenda is bringing in line the co-operative banks. Co-operative 
banks have been increasing claims on the Deposit Insurance and Credit Guarantee 

While there is a clamour for increasing the limit of protection on depositor 
funds from the present level of Rs 1 lakh, there is also a pressure on payouts. 
“People are not happy with the limit but who is going to pay the premium,” said 
Mr Kamesam adding that there was a case for increasing the premium. “There is a 
case for increasing the premium. Right now under the existing laws we can go up 
to 15 paise from 5 paise. We have got the approval to go up to 10 paise in two 
phases,” said Mr Kamesam. 

Explaining his comments during the Bank Economists Conference on the 
asset-bubble risks in housing finance, Mr Kamesam said that the comments were 
in response the fears expressed by BD Narang, chairman of Oriental Bank of 
Commerce. “It was Mr Narang who expressed his grievance on rising 
non-performing loans. 

He also voiced concern over the documentation. While I said that this can be a 
potential bubble even now I believe that we can sustain the growth. The home 
portfolio is good and I believe they are performing. If Narang and others are 
worried they should take stock of the situation.” said Mr Kamesam. 

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